The unwanted HDB 2-room flats

The table above shows the application rates for 2-room flats for both the September and March sale of balance flat (SBF) exercises this year. Data is available from the HDB website.

Highlighted in red are the towns that were under-subscribed. Looking at these statistics leaves me puzzled – am I missing something here? – but I will come to that later.

The first question, looking at these numbers, is why are 2-room flats so unpopular? These two exercises were conducted after the income ceiling increase from $2000 to $5000 for mature estates, allowing not just lower income but also more lower-middle income families to purchase these units. But it is evident that demand even in popular mature towns such as Clementi has not been boosted much as a result of the rule change.

It is not hard to see why. The single bedroom design of 2-room flats rules out most families with kids. First timer young couples in this $2000-$5000 income bracket would typically go straight for 4 or 5-room units when taking into account the likelihood of kids and higher income in the future. Another group of target applicants are the downgraders, possibly middle-aged parents after the kids have moved out. But unless there is a dire need for cash most residents would stay put in their existing homes despite the empty bedrooms. And for the older folks, going for studio flats makes more sense due to built-in elder-friendly features.

The numbers suggest that demand in each estate doesn’t go beyond double digits regardless of the supply (in Punggol, for example where it was oversubscribed in Sept, the number of applications was 88). I don’t think this shows a small number of lower income people in Singapore, but rather a tendency to over-leverage and go for bigger flats. And this tendency itself is an unfortunate side-effect of the 5-year minimum occupation period (MOP) restrictions imposed by the HDB. Of course, cheap and easy financing is a factor as well.

The second question, and this is the one that puzzles me, is why is the HDB building these 2-room flats if there is very little demand for them? As far back as January 2010, it was already reported that the number of applications for these flats was barely half of what was available. Seeing that most of these flats in the current SBF exercise will only be ready in 2015, they must have only launched in the last two years. So why are they still building over 200 units in some estates? Or is the relative lack of 2-room flats in recent BTO exercises a sign that they are being phased out?

Earlier in April, Channel NewsAsia reported that the application rate for first timers in the March SBF exercise was 1.9 (number of first timer applicants to each available flat). Together with the ratio of 2.1 for BTO, National Development Minister Khaw Boon Wan commented that first-timer applicants will have a good chance of selecting their flats.

While the BTO situation is improving, it’s not hard to notice that the SBF ratio was brought down by the low take-up rates for 2-room flats. How else could the SBF rate possibly be lower than the BTO rate? For 3 to 5-rooms, and even the studio flats, SBF over-subscription can easily exceed 10 times and is often at stratospheric levels. I hope the minister is not led into thinking that first timers are now taken care of because the overall ratio is skewed by this mismatch between demand and supply.

Given the excess supply, maybe it’s a good idea to open these flats up to singles since the floor areas are similar to shoebox units that are apparently so popular. It will help in some way to address their needs, though I doubt many singles would be flocking to these flats. A waiting time of 1-3 years plus the MOP will scare away all but those who absolutely rule out marriage.

Then again, if you don’t plan to get married and have babies, the government doesn’t care much about you anyway. Literally and figuratively, you are on your own, mate.

[…] the media as well, is that 2-room flats continue to be under-subscribed. I have written about these unwanted 2-room flats before. Despite the low demand, HDB continues to roll them out . It must be glad that rules will be […]

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